Telenor cash for Unitech won’t come in 2008

New Delhi: Real estate firm Unitech Ltd, which is struggling to meet debt payments, will likely be hit by a delay in infusion of equity into its telecom subsidiary by a foreign partner, resulting in the telecom firm’s debt continuing to show up in the parent’s already-loaded books.

Unitech Wireless Ltd will not receive the $250 million (about Rs1,200 crore) first instalment from Sweden’s Telenor ASA by December, contrary to an announcement in October when the Swedish firm acquired a 60% stake in the firm.

The delay is on account of tower sharing agreements Telenor is putting together in India, according to two analysts, and regulatory filings which take several weeks to be approved by the government and are yet to be submitted.

The immediate impact of the delay in the payment is that around Rs1,200 crore debt in the phone unit will continue to show up in the books of the realty firm, India’s second most valuable listed property firm. That debt was to be transferred to Telenor on the infusion of the first round of capital.

Unitech Ltd, which has consolidated debt of some Rs8,000 crore, is struggling to meet around Rs2,700 crore of debt obligations by March and has said it will sell some of its properties to meet this target. Unitech’s current net gearing, or net debt to equity ratio, is around 1.8. “Once the equity infusion happens into our telecom subsidiary, net gearing will come down to about one,” R. Nagaraju, Unitech’s head of planning and strategy, had told Mint on 20 November.

On Thursday, an analyst said Unitech would likely pay more interest than budgeted earlier on Unitech Wireless’ debt but did not quantify the increased outgo. “The debt will remain on their balance sheet and the longer they take to pay off their debt, the more interest accrues,” said Nishna Biyani, telecom analyst for Prabhudas Liladher Pvt. Ltd, adding that he and his firm did not expect the tranche to come in (this month) given the coming holidays over Christmas and New Year season.

Telenor, the world’s seventh largest phone firm by customers, had invested Rs6,120 crore for 60% equity in Unitech Wireless in an all-cash, four-tranche deal, extending its reach to India, the world’s fastest growing and second-ranked mobile phone services market by users.

The four tranches were to be completed by September 2009, Telenor's Asia chief executive Sigve Brekke had said in October, starting with a mid-December first instalment that would give the Oslo-head-quartered phone firm a 20% stake in Unitech Wireless and rid the realty firm of the debt on account of its phone unit. The firm later said the first tranche would come by the end of this month.

Unitech has invested Rs2,000 crore in its telecom business, of which about Rs1,200 crore is by way of loans from banks. The parent had also lent Rs770 crore to Unitech Wireless.

Telenor Asia spokesman Esben Tuman told Mint that Unitech has still not applied to the foreign investment promotion board, or FIPB, an arm of the Indian government’s finance ministry that processes applications for foreign direct investment into Indian firms.

Unitech managing director Sanjay Chandra and other executives did not respond to repeated requests for comment made over two days.

“FIPB approval is mandatory and the application will be filed by Unitech Wireless as soon as the final closing of the deal has been made. Same goes for the (first) tranche,” Tuman said in an email. “After signing agreements like this, there will always be many outstanding issues to work on before the deal can be closed. Such is also the case here, but I can not go into details on what we are working on now. Furthermore, I can not commit to a date for closure, but simply underline that we are working hard to make it happen soon”.

According to a senior official in the finance ministry, who did not want to be named, the normal timeline for FIPB to consider an application is three weeks after the applicant submits relevant documents. In the case of telecom investments, the application is sent to the home ministry for scrutiny before FIPB considers the application, the official said. There is no fixed timeline for the home ministry’s clearance.

The market has been rife with rumours that the Telenor-Unitech deal was in trouble. Both sides have repeatedly denied this.

On Thursday, an analyst said it appeared such worries were unfounded. “I spoke to a few Telenor investors in Norway and they said that Telenor was waiting for the infrastructure (through tower-sharing arrangements with other companies) to be in place before signing the deal,” the Mumbai-based analyst said asking that neither he nor his firm be named. “I am told that they are going to decide not to go through with the rights issue and are instead going to raise debt.”

A London analyst, who tracks Telenor, too, said, “the deal was contingent on the tower sharing arrangement”. Towers are a critical part of the physical infrastructure telecom firms need to set up to start operations. In an effort to cut costs and the time it takes to launch services, new entrants have started piggybacking the towers of existing firms or independent tower companies, for a fee.

Telenor had in October said it would raise $1.8 billion through a rights issue to fund the Unitech transaction.